Begin by preparing your baking dish: Line an 8x8-inch square baking dish with parchment paper, leaving some excess paper hanging over the edges to assist with removal later.
In a medium saucepan set over low heat, combine 2 cups of semi-sweet chocolate chips, 1 cup of sweetened condensed milk, and 1/4 cup of unsalted butter. Stir continuously until the chocolate and butter have melted completely and the mixture achieves a smooth, glossy consistency.
Once melted, remove the saucepan from heat. Stir in 1 teaspoon of vanilla extract, mixing until well incorporated.
Carefully fold in 1 cup of miniature marshmallows and the optional 1/2 cup of chopped walnuts, making sure the marshmallows are evenly distributed throughout the decadent chocolate mixture.
Pour half of this luscious fudge mixture into the prepared baking dish, smoothing it evenly to cover the bottom.
Take spoonfuls of the remaining fudge mixture and dollop it on top. Using a knife, gently swirl through the layers to create beautiful marbled patterns without blending them too much.
For a playful finishing touch, generously sprinkle 1/4 cup of colorful sprinkles over the top.
Transfer the fudge to the refrigerator and chill for 2-3 hours or until it is firm to the touch and set.
Once fully chilled, carefully lift the fudge out of the dish using the overhanging parchment paper and place it on a cutting board. Cut into 16 squares for serving.
Notes
For an extra touch, serve each square in a colorful cupcake liner and pair with hot cocoa for an indulgent treat!