You could do it with the shape tool and a vector mask or you could do it with the marquee tool.
Vector mask way:
Using the 'rounded rectangle tool' create a rounded rectangle the desired shape around the image.
As long as it's not on a background layer you can then go to Layers>Vector Mask>Current Path. And it will give you a layer mask which can be edited if it's not quite what you were after.
Marquee technique:
Use the square maquee tool to select the area you want then use Select>Modify>Smooth or Refine Edge to get the rounded corners you want.
Then select>inverse and delete the surrounding area or fill it with a border colour.
Select all
Q for quickmask
Filter->blur->gaussian blur (Radius defines radius of final curve)
Image->Adjust->Levels (Set lower threshold to 126, mid to 127, upper to 128)
Q to exit quickmask
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