I recently tried to use stencils to paint on a mixture on fondant and gumpaste. The stencils were of cursive letters. I used lemon extract to dilute the food coloring, which was the McCormick brand from my local grocery store - the first ingredient is water. I read about not using water-based food coloring but did it any way. I laid the the stencil on the fondant/gumpaste, touched paintbrush to paper towel to remove excess paint, and as soon as the brush touched the fondant, the paint bled under the stencil. The stencil is made of soft, flexible plastic.

Was the entire problem the water-based food coloring? Do intricate stencils not work well for painting on cakes? Do I need a super thin brush?

I ended up doing it free hand in block letters and that was fine. No running colors. Color was even. Except the pink looked red. Do I need to dilute more?

I really like the idea of painting on fondant and/or gumpaste, with and without stencils, and would appreciate any advice.

Generally you use royal icing with stencils.

If am painting (not just swiping with RI or buttercream) with the stencil I use lemon extract with powdered food colors. It has worked well for me. You can also use airbrush colors (undiluted, straight from bottle), luster dust or petal dust for stencils when painting with them. I have tried and failed with gel and liquid food colors, but extract plus powdered always comes out ok for me. Good luck.

Once I wanted to paint on fondant for cookies using stencil later I changed my mind and I used royal icing (the only picture that I uploaded).
But I practiced painting on fondant too and I will try to upload the picture in the message.
I rubbed a little shortening, very little, on the fondant and spread it evenly. It is only to help the stencil stick to the fondant. Do not put too much or you still have the color spread under the stencil. After I secured the stencil a little, I rubbed more shortening only on the design. Then with a clean stencil brush I applied the powder color (luster dust in my case) to the design (try holding the stencil in place with your hands too). Let it rest for a few minutes and very slowly remove the stencil. Let the design rest for a few hours before touching it.
This video helped a lot
http://www.youtube.com/watchv=WH6YEUu6YAI&feature=channel_video_title

Okay, I can not upload the picture in the message so I will add it to my pictures. It is the one with gold design on the red fondant heart.

I love using airbrush colors to paint with. No need to thin them done with anything and they dry well.

I think if your colors spread quickly under the stencil it had to do more with having the mixture thin and not that they were water based.

If you are painting on fondant, it has to be dry. If there is any moisture on it, it will bleed.

Thank you for the quick replies. It sounds like I have a few different approaches to try!