Mix the water and sugar in a medium heavy-bottomed saucepan. Cook over low heat for 5 to 10 minutes, until the sugar dissolves. Do not stir. Increase the heat to medium and boil uncovered until the sugar turns a warm chestnut brown (about 350 degrees F on a candy thermometer), about 5 to 7 minutes, gently swirling the pan to stir the mixture. Be careful – the mixture is extremely hot! Watch the mixture very carefully at the end, as it will go from caramel to burnt very quickly. Turn off the heat. Stand back to avoid splattering and slowly add the cream and vanilla. Don't worry - the cream will bubble violently and the caramel will solidify.

Simmer over low heat, stirring constantly, until the caramel dissolves and the sauce is smooth, about 2 minutes. Allow to cool to room temperature, at least 4 hours. It will thicken as it sits.