The oddball star was staying at a hotel in Germany and held Prince Michael II - whose head was covered by a white sheet - over the iron rail of the balcony.
People in the crowd were shocked and the scene went out on TV, too.
"I made a terrible mistake," he said. "I would never intentionally endanger the lives of my children."
Jacko has two other children: Prince Michael, 4, and Paris 5.
No one's sure if the baby is his biological son or adopted.