Measure the cereal into a large mixing bowl and set aside. Prepare a large resealable plastic bag or container with a lid for coating.
Combine the chocolate chips, peanut butter, and butter in a microwave-safe bowl. Microwave on 50% power in 30-second intervals, stirring after each, until completely smooth and melted, about 2-3 minutes total.
Stir the vanilla extract into the melted chocolate mixture until evenly combined and glossy.
Pour the warm chocolate mixture over the cereal and gently fold with a spatula until every piece is evenly coated. Work quickly but carefully to avoid crushing the cereal.
Transfer the coated cereal into the prepared bag or container. Let cool for 2-3 minutes until warm but no longer hot to the touch.
Add the powdered sugar to the bag, seal tightly, and shake vigorously for 30-45 seconds until every piece is covered in a thick white coating.
Spread the puppy chow onto a large baking sheet or parchment paper in a single layer. Let cool completely for 10 minutes before serving or storing.