Place the sugar in a small saucepan and pour the water around the edge to moisten it. Bring to a boil; then add the peanuts. Stir continuously until all the water is cooked away. Turn the heat to medium and continue cooking and stirring until caramelized.
Dump the peanuts onto a slightly greased surface, like a piece of marble, and let cool slightly. Using your hands, and being careful not to burn yourself, separate them into individual glazed nuts. Let cool completely and store in an airtight container.
Recipe courtesy of Gale Gand