In a stand mixer bowl, dissolve gelatin in 1/4 cup water. Set aside.

Stir remaining 1/4 cup water, honey, and salt together in a small saucepan. Place saucepan over medium heat. Stirring frequently, heat mixture to 245F. Remove from heat.

Very slowly, pour water-honey mixture over water-gelatin mixture. Attach a whip attachment to mixer, and beat on high speed 4-5 minutes, or until mixture is thick and creamy. (While mixture is beating, lightly dust a 9x13 pan with powdered xylitol) Add vanilla to marshmallow mixture and beat an additional 30 seconds.

Immediately spread marshmallow mixture in prepared pan. Smooth top with a spatula and dust with additional powdered xylitol. Allow marshmallows to set at room temperature up to 2 hours. Once marshmallows are set, cut into 1-in squares and roll in additional powdered xylitol.