There are several ways to create rounded corners using Photoshop. Here are three common methods…

Rounded rectangle tool
(1) Rounded Rectangle Tool (Photoshop 6+)
Select the rounded rectangle tool from the toolbar (pictured right).
In the options bar, select the desired roundness by adjusting the radius value.
Draw a rectangle.
This gives you a photoshop shape which is quite flexible. However if you want to make it into a bitmap shape, right-click the layer in the layers palette and select “Rasterize layer”.

(2) Use the Selection Tool
Rounded rectangle tool
Select the rectangle marquee tool (pictured right).
Draw a rectangle.
From the main menu, select Select->Modify->Smooth. Enter the desired corner radius.
Fill the selection with whatever color you want.