In small microwaveable glass bowl, melt together peanut butter, chocolate chips, and butter. Start with 30 seconds, then stir. Add additional 10-20 seconds as needed until melted. Stir to combine. Mixture should be smooth and creamy.
Add vanilla to chocolate mixture. Stir.
Pour cereal into large bowl. Pour chocolate mixture over cereal. Using a plastic spatula, slowly stir to thoroughly coat cereal with chocolate.
Place chocolate coated cereal into large zip lock baggie (1 gallon size works well). Gently shake until all cereal is well coated with sugar. Once mixed, gently pour onto large baking sheet. If needed dust with additional powdered sugar. Let sit for about 5 minutes to "set" the chocolate.