When a RadDock without having its height property set is collapsed and then expanded, an explicit height is set to its wrapper as well as to its content wrapper, so that it cannot be resized. The workaround is to remove both heights on DockExpandCollapseCommand:

ASPX:

        <telerik:RadDock runat="server" ID="RadDock1" RenderMode="Classic" Resizable="true">
            <ContentTemplate>
                <asp:Button ID="btn" runat="server" Text="Click me" OnClientClick="toggleVisibility(); return false;" />
                <div id="divExpand" style="display: none; height: 400px;">
                    Expanded
                </div>
            </ContentTemplate>
            <Commands>
                <telerik:DockExpandCollapseCommand OnClientCommand="DockExpandCollapseCommand" />
            </Commands>
        </telerik:RadDock>

JavaScript:

        <telerik:RadCodeBlock ID="RadCodeBlock1" runat="server">
            <script type="text/javascript">
                function toggleVisibility() {

                    var divExpand = $get('divExpand');

                    if (divExpand.style.display == 'none') {
                        divExpand.style.display = 'block';
                    }
                    else {
                        divExpand.style.display = 'none';
                    }
                }

                function DockExpandCollapseCommand(sender, args) {

                    if (!sender.get_collapsed()) {
                        sender.get_contentContainer().style.height = "";
                        sender.get_element().style.height = "";
                    }
                }
            </script>
        </telerik:RadCodeBlock>