Can I upgrade the CPU?

You are limited to what Apple used in this series:

• 2.5 GHz Core i5 (I5-2400S)
• 2.7 GHz Core i5 (I5-2500S)
• 2.8 GHz Core i7 (I7-2600S)

Here is the IFIXIT guide you'll need to follow to gain access to the CPU: iMac Intel 21.5" EMC 2428 Logic Board Replacement. Once you get the logic board out you'll need to take the heatsink assembly off. While not a true guide it can give you a view of the last steps: iMac Intel 21.5" EMC 2428 Teardown. Pick it up at Step11 and then jump to Step13. Don't forget to fully clean the heatsink and apply a fresh coat of thermal paste: Arctic Silver Thermal Paste. You may want to review how to apply it here: How to Apply Thermal Paste