Line an 8-inch square pan with aluminum foil; grease foil.

Cook the chips and the condensed milk in a heavy saucepan over low heat, stirring constantly, until melted and smooth. Remove from heat; let cool 2 minutes, then stir in vanilla and 1 cup of the marshmallows.

Pour into lined pan. Stick graham cracker pieces and remaining marshmallows into fudge. Refrigerate 3 hours or until firm. Invert pan, peel off foil, invert fudge and cut in 1-inch squares.