Uneducated After Hire: He doesn't know how to read and it is directly affecting his preformance at work. Can he be released? How do we handle?

This wasn't determined during the interview process? But yes, if he can't perform his job, then you release him. It might be better to help educate him. This will probably make for a more loyal employee. But if the company an't afford to do so, then simply explain that it does not appear he can meet the requirements of the job.

On another note... Why can't he read? Does he have a disability? If so, releasing him may go against the ADA and could open you up to legal trouble.

Yes, how did he get all the way though an interview and application and not read?

Is reading required for the job? Is it part of the written job discription?

Is it possible there is medical reason, has employee been counseled and discussed with him

Another question is how long has he been employed by your company? Is he still in the 90 day probationary period?