In a medium saucepan, combine the rinsed cranberries, granulated sugar, and water. Place over medium heat and stir occasionally until the cranberries burst and the mixture thickens, about 10 minutes. Remove from heat and let cool completely.

In a large mixing bowl, beat the softened cream cheese until smooth. Add the cooled cranberry mixture and vanilla extract, mixing until well combined. Gently fold in the whipped topping, mini marshmallows, and chopped nuts if using.

Transfer the mixture to a serving dish or individual cups, cover, and refrigerate for at least 2 hours to chill.

Serve chilled, garnished with whole cranberries or chopped nuts if desired.