In a medium saucepan, combine cranberries, sugar, and water. Heat over medium, stirring occasionally until boiling. Cook for about 10 minutes until cranberries burst and mixture thickens. Remove from heat and let cool completely.

In a large mixing bowl, beat softened cream cheese until smooth. Fold in the cooled cranberry mixture until well combined.

Gently fold in whipped topping, mini marshmallows, chopped nuts (if using), and vanilla extract until evenly combined.

Transfer the mixture to a serving dish, cover, and chill in the refrigerator for at least 2 hours.

Serve chilled, garnished with nuts or extra marshmallows if desired.