In a large microwave safe bowl (or a glass bowl of a stand mixer), microwave the marshmallows and the first 2 Tbsp portion of water in 30 second increments. Stir between each microwave heating until the marshmallows are melted and smooth.
Add sifted confectioners sugar to the bowl of melted marshmallow, starting with approximately ¾ of your sugar. Combine using a wooden spoon, folding the confectioners sugar into the marshmallow. Continue to combine until most of the confectioners sugar is mixed into the marshmallow.
Ready your work surface with a generous coating of the vegetable shortening (coat your hands too) and then transfer the fondant mixture to your work surface. Scrape out any still-dry confectioners sugar onto the top of your fondant mixture.
With your bowls of vegetable shortening, water and the remaining portion of sifted confectioners sugar nearby begin kneading the fondant. Keep your hands and work surface well coated with vegetable shortening especially when starting the kneading process as the fondant mixture will be very sticky.
Knead the fondant, adding more of the sifted confectioners sugar as needed, until the marshmallow fondant stretches about 2 inches out before breaking (it will stretch many inches before breaking when it is still too wet - see video).
Once you reach the desired consistency, coat all sides of your fondant (rolled into a log shape) with the remaining vegetable shortening. Double wrap your coated fondant with plastic wrap, then place inside a ziploc bag. Store refrigerated at least 12 hours to set up, preferably 24 hours.
After the marshmallow fondant has setup, it is ready to use. Heat in short 30 second increments (at half power) as needed to soften your fondant if it is too firm for you to roll out and work with.
*Keep all fondant wrapped in plastic wrap when you are not working with it, as fondant dries quickly.