In a microwave-safe bowl, microwave the chocolate chips, peanut butter, and butter for 1 minute on high. Stir. Microwave for 30 seconds longer or until smooth. Stir in the vanilla extract.
Pour the mixture over the cereal. Stirring until the cereal is coated. Pour the mixture into a large ziplock bag and add the powdered sugar. Shake until well coated. Spread the coated cereal pieces on wax paper to cool. Store in ziplock bags or a large sealable bowl.