In Single Player/Ko-Op:
Defeat the Game as Kung Lao to unlock Sub-Zero in Single or Ko-Op modes.
In Versus Mode Find the Red Yin Yang in Wastelands. Where Sub-Zero freezes the giant door, walk to the right of the outside of the door and you'll see the item on top of the statue. Use the Angled Wall Run to get on top of the statue to unlock Sub-Zero in Versus Mode.