Boil sugar and milk in a medium saucepan, stirring occasionally, to soft ball stage*, or about 236° on a candy thermometer. Remove from heat and stir in remaining ingredients.
Pour candy into a greased 8x8-inch pan and chill. Cut peanut butter fudge into squares when cool and firm.
*To Test for Soft Ball Stage
A small amount of syrup dropped into chilled water forms a ball, but is soft enough to flatten when picked up with fingers (234° to 240°).