Combine sugar and water in a saucepan.

Bring the mixture to a boil over medium heat.

Stir continuously until the sugar is completely dissolved.

Add instant coffee powder to the sugar syrup.

Stir well to ensure the coffee is fully dissolved.

Remove from heat and allow the mixture to cool to room temperature.

Once cooled, stir in vanilla extract and grain alcohol.

Carefully transfer the Kahlua into bottles.

Seal the bottles tightly.

Let the Kahlua set for at least one week, preferably a month or longer, before serving to allow the flavors to meld.