Can you play a reaction spell to Elder Dragons ability?

Yes. Elder Dragon's "When you play me" ability is a triggered ability that goes on the Chain, which creates a Closed State — so you can play a [Reaction] spell targeting that ability.

Note the nuance: you can't react to Elder Dragon itself being played (units resolve immediately and never linger on the Chain — FAQ 5909), but its play trigger is a separate Chain item and is fully reactable (FAQ 4606, 9377). One more caveat: its passive ability ("Any amount of your damage is enough to kill enemy units") is not on the Chain and can't be countered — only the triggered damage ability can.