In a medium saucepan combine the sugar, milk, and butter. Cook and stir over medium-high heat to boiling.
Continue to cook and stir the sugar mixture over medium heat, until it reaches the softball stage 235 degrees.
Once the mixture reaches soft ball stage, remove from heat and stir in vanilla baking chips, vanilla, marshmallow creme and 1/4 cup crushed candy canes. Stir well to combine, making sure all the marshmallow creme is mixed in.
Once fully mixed, quickly pour into the buttered 9 by 9-inch square pan.
Quickly sprinkle with the crushed candy canes. If the surface of the fudge is setting fast, press them gently into the fudge.