In a medium saucepan, combine the milk, sugar and water over medium heat; whisk occasionally until the sugar is dissolved. Increase the heat to medium-high and bring the mixture just to a simmer. Remove the pan from the heat and whisk in the chocolate.
Blend right in the pot with a hand-held an immersion blender, or transfer it to a traditional blender. Blend for a minute, until smooth and frothy. Serve immediately; rewarm if you need to get it hot.