Line a 13x9-in. pan with foil and grease the foil with butter; set aside.
In a large metal bowl, sprinkle gelatin over 1/2 cup water; set aside. In a large heavy saucepan, combine the sugar, corn syrup, salt and remaining water. Bring to a boil, stirring occasionally. Cook, without stirring, until a candy thermometer reads 240° (soft-ball stage).
Remove from the heat and gradually add to gelatin. Beat on high speed until mixture is thick and the volume is doubled, about 15 minutes. Beat in extract. Spread into prepared pan. Quickly drop food coloring over candy; cut through candy with a knife to swirl. Cover and let stand at room temperature for 6 hours or overnight.
Combine confectioners' sugar and peppermint candies. Using foil, lift marshmallows out of pan. With a knife or pizza cutter coated with cooking spray, cut into 1-in. squares; toss in confectioners' sugar mixture. Store in an airtight container in a cool, dry place.