Place marshmallows in a large, microwave-safe bowl. Add water. Microwave in 30 second increments; mix the mixture every time the microwave stops. Heat until all marshmallows are melted.
Add 1 cup of powdered sugar to the marshmallow mixture and stir with a wooden spoon until combined. Add additional sugar, 1 cup at a time. At this point, the mixture will be very sticky. Turn mixture into the counter. Grease your hands with coconut oil and knead the fondant until smooth and elastic, about 10 minutes. If the fondant seems too dry, add ½ teaspoon of water. Use as much coconut oils as needed to prevent from sticking. Form the fondant into a ball. If you want color in your fondant, this is the time to add. Continue kneading the fondant until the color is evenly distributed.
Wrap the fondant in plastic paper and allow to rest in the refrigerator overnight. When ready to use, remove from refrigerator and allow the fondant to reach room temperature.
To cover cakes or cookies, roll the fondant using a rolling pin and cornstarch to prevent sticking to the surface.