Dust counter with powdered sugar. Place the marshmallows and the water in a bowl. Microwave on high for 30 seconds, until the marshmallows are expanded.
Stir the marshmallows with a spatula until melted and smooth. If you want colored fondant, add several drops of food coloring and stir until incorporated.
Add powdered sugar slowly and stir with the spatula until the sugar begins to incorporate and it becomes impossible to stir anymore.
Scrape the sticky mixture onto the prepared work surface. There will be lots of sugar that has not been incorporated yet. Knead the fondant mixture, working the sugar into the fondant.
Continue to knead the fondant until it smoothes out and loses its stickiness. Stop adding sugar once it is smooth or it may become stiff. Your fondant is now ready to be used: roll it out, shape it, or wrap it well in cling wrap and keep in the refrigerator.