Sprinkle gelatin over 1/4 cup skim milk in a small saucepan; let stand 1 minute. Over low heat, stir until gelatin completely dissolves, about 3 minutes, and set aside.
Blend watermelon, 3/4 cup skim milk, frozen yogurt and powdered sugar in electric blender at high speed until smooth. Add gelatin mixture. Add ice cubes, blend at high speed until smooth and frothy. Serve immediately.