In a mixing bowl, combine the softened cream cheese and powdered sugar. Beat with an electric mixer on medium speed until smooth and creamy.
Add the sour cream and vanilla extract to the mixture. Continue to mix until fully incorporated.
Gently fold in the whipped topping until well blended.
Stir in the rainbow sprinkles, reserving a few for garnish.
Transfer the dip to a serving bowl and sprinkle the reserved sprinkles on top.
Chill in the refrigerator for at least 30 minutes before serving to allow the flavors to meld.
Serve with graham crackers, fruit, or pretzels for dipping.