Round/rounded, curved/smooth corner, there are many names for this effect and there are a few methods to create it. In this tutorial, I’m gonna teach you how to get your photos to have rounded corners using what I consider the easiest and most flexible method – using clipping masks.
Your image is by default a Background layer, which is locked. To unlock it, double click the layer. At the “New Layer” dialog box, you may choose to rename the layer, in this example, “Spring”, or leave it as “Layer 0″, and click OK.
Click-hold the Shape Tool on your tools palette and select Rounded Rectangle Tool. If the tools palette is not visible, go to the menubar and click Window > Tools.
At your Shape options bar, enter a Radius of 20px (you can experiment with different values later).
Click and drag a Rounded Rectangle Shape over your photo. Note that the actual cursor is a hairline cross, not a Giant Arrow. A Shape 1 layer is automatically created above your photo layer. Move the shape around until you are roughly satisfied with the positioning.
Drag the Shape 1 layer below your photo layer. An outline of the shape will be visible on your photo layer.
Select the photo layer (Important:Make sure you have the photo layer selected before moving to the next step!).
Click on the little arrow at the top right corner, then click on Create Clipping Mask.
Voila! Your photo layer is now masked to the shape layer below. At this point, you can select the Shape layer and move it around or transform its size, if you like.
Before saving this image, you might want to crop away the unecessary transparent pixels surrounding your photo. From your menu bar, go to Image>Trim…
Copy the options below. The file will be cropped exactly to the edge of your photo.
Remember to save the file as GIF or PNG with Transparency option checked. If you save it as a JPG, the white border will show when used on top of another image/web page color that is not white.