Can a Z/OS mainframe application or DB2 read a SQL Server database/table directly?
Define read...

You can certainly run a Java application on z/OS that uses JDBC to connect and transfer data from MS SQL Server into DB2 for z/OS.

Otherwise, IBM's distributed database protocol is known as Distributed Relational Database Architecture (DRDA).

Both IBM and Microsoft offer products that allow MS SQL server to be seen as a remote DB2 server.
Microsoft Service for DRDA
IBM InfoSphere Federation Server 

With the IBM product, you'd need a DB2 LUW server in the middle.

On IBM's midrange platform, IBM i (aka AS/400), there exists an open-source DRDA-JDBC gateway, ArdGate.  I don't know if something similar exists for z/OS or if you could port the project or build one yourself.