Line a large sheet pan with parchment paper. Divide fondant into as many pieces as colors that you would like to have. Knead food coloring, 1 drop at a time, into fondant. Sprinkle work surface and rolling pin with powdered sugar. Flatten fondant into a square and roll it out until it is 1/4-inch thick, rotating it so that it does not stick. Pierce any bubbles with a fork. Brush off excess sugar with a pastry brush.
With a knife, cut fondant into pieces just large enough to wrap each marshmallow. Stick each marshmallow on the end of each popsicle stick. Roll fondant around each marshmallow, pressing lightly to seal.
Recipe courtesy of Sandra Lee