Combine water and sugar in a medium saucepan over medium heat. Bring to a boil and cook until sugar dissolves, about eight minutes.
Add peach slices and vanilla extract to syrup mixture. Reduce heat and simmer, partially covered, until peaches are tender and easily pierced with a fork, about thirty minutes.
Discard syrup from the pot and allow the peach slices to come to room temperature.
When the peaches are cool, combine in a blender with milk and ice cubes.
You can substitute whipped topping, unwhipped, for the milk, if desired.