Place marshmallows and water into a large microwave-safe bowl.
Microwave in 30 second bursts until marshmallows are fully melted.
Transfer marshmallow mixture to bowl of stand mixer. Add in 3/4 of the powdered sugar and mix together.
Once fondant has begun to come together, switch to kneading arm on stand mixer.
Knead for 8 minutes, adding remaining powdered sugar a little at a time until the mixer cleans the side of the bowl.
If you want to color the fondant, add a little gel color to the fondant, then knead until color is even throughout.
Wrap the fondant in Saran wrap, then place in the fridge for 8 hours.
Allow fondant to come to room temperature before using.