I've been asked a couple of times 'how do you change the size of a rounded rectangle once it has been drawn'. The problem is that when you scale the rounded rectangle as you would a normal shape the rounded corners become squashed or stretched. Well, here is the solution…
You have your rectangle drawn on your artboard, but you have decided that you want it to be thinner and longer so you grab the scaling handles and adjust the shape. Oops, look what happened to the rounded rectangle… it no longer has rounded corners, these have been stretched or squashed by the scaling you have just done.
To alter the size of a rounded rectangle once it has been drawn, use the Direct Selection Tool (White Arrow) from the toolbar. Drag a selection across any sets of four points that make up two corners.
Click and drag anywhere on the line or a point whilst holding shift to move the points into the correct place. Alternatively use the Cursor Keys on the keyboard for fine tweaks.
Next, drag a selection across the next set of points and drag these into place to complete your adjustment.
You will then be left with your rounded rectangle in the dimensions you require whilst keeping the rounded corners.
And Now, a Much Better Way! - Courtesy of gabrielnot of notdesign.com
Forget about the Rounded Rectangle Tool altogether, instead draw a plain old Rectangle.
With your rectangle selected, go to Effect > Stylize > Round Corners…
In the following option box enter the Corner Radius you desire.
Now, you can scale and resize the rectangle with rounded corners as much as you like whilst Illustrator will render the correct corner radius each time!
What's more, because the Rounded Corners was added as an effect, we can go back into the options and alter the radius of the corners at any time by double clicking the effect in the Appearances Palette.
If you decide you have finished editing your rectangle and want to make the changes permanent, head over to the Object menu and select Expand Appearance, which will convert the object into paths.