Yes, it's real.

This is the graduation photograph listed for one Don Vliet in the high school yearbook at Antelope Valley High School, Lancaster, CA.

Having jokingly claimed to have only spent half a day at kindergarten, this photograph would suggest otherwise. However, it is still possible that he did drop out as claimed. When I asked one person who was actually at school with both Don and Frank Zappa about this photograph, she replied:

"Don dropped out sometime during his senior year and probably didn't actually graduate. Knowing him, he probably found a way to don the cap and gown and get his picture taken just for chuckles."

Alternatively, many schools take graduation pictures early and it is possible that Don dropped out in the time between having his photograph taken and when he would have actually graduated.

Anyway, whatever the story behind it, that's definately Don in the picture. As a bonus here is the graduation photograph of Frank Zappa from the same school, a photograph which you may be more familar with: