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1
      
Make a rectangle selection.
2
Create a new layer in the "Channels" menu and fill your selection white.
3
Deselect your selection. Then use "Gaussian Blur" (Filters>>Blur>>Gaussian Blur) The blur should look something like the picture to the left with fuzzy edges but so you can still see the basic shape of the image.
4
Open the "levels" menu (Image>>Adjustments>>Levels or Ctrl+L) Then bring the left and right sliders in until the images corners are nice and smooth.
5
Click the dashed circle to load the channel as a selection. Then click back on one of your layers in the layers menu.
6
Here is an example of what can then be done.

Slight Inner Bevel, Stroked with Gray and a light drop shadow.