Combine and simmer. In a small saucepan, combine the chocolate chips, sweetened condensed milk, and peanut butter. Cook over medium-low heat, stirring occasionally, until melted; about 2 minutes.
Add vanilla and water. Remove from the heat and stir in the vanilla. Then, add in 2 tablespoons of boiled water at a time to thin it out; stir in more water to achieve the desired consistency.
Finish and serve. Drizzle the hot fudge sauce over ice cream and serve.
Storage. Let it cool completely before storing it in a jar or an airtight container, tightly covered. Keep refrigerated.