Chill a small bowl and electric beaters in the refrigerator. Meanwhile, soften the gelatin in the cold water in a glass measuring cup. Heat the cup in the microwave for 10 seconds on high. Or, place the cup in a pan of simmering water and heat on medium-low until the gelatin dissolves. Set aside.
Combine the dry milk, ice water, and powdered sugar in the chilled bowl. Beat the mixture with the chilled beaters of an electric mixer at medium speed until foamy. With the motor running, add the gelatin in a thin stream. Beat for 10 minutes and then beat in the vanilla. Use immediately or freeze. If frozen, thaw for about 15 minutes before serving. The whipped cream deflates if left standing; you can rewhip with cold beaters.