To unlock Krypo you need to go to Zamaron Hub/Planet , there do the quests for the Green Loontern, I think there were 4 of them, then you will be able to do a 5th quest there which involves a race against Krypo, win and you will be able to unlock him.
The race itself isn't that difficult but go into it with a flying character, personally I found Batman w/ spacesuit the best.
Another tip: Turn on the mission indicator cheat. I think you can buy that from the start of the of the game you don't need a red brick to unlock it , so buy it from the computer in the Batcave / Watchtower, this makes finding the missions much easier as they can be tough to find on the Hub planets.
Hope this helps.