The child was being watched by his 13-year-old sister at the Riverview Towers on Presidential Boulevard in Paterson.
Police say the sister went inside the apartment around 8:30 p.m., leaving the boy alone on the balcony. He reportedly climbed on top of a chair and toppled over the railing.
The boy barely missed the spiked iron gate that surrounds the building, instead landing on the grass.
A witness said the sister ran outside and brought the child back upstairs, attempting to rock him to sleep before a security guard who saw the incident unfold contacted police.
Paterson Police Director Jerry Speziale said the toddler's mother was sleeping, while the father was showering.
The boy was rushed to St. Joseph's Regional Medical Center, where he is under observation and expected to survive.
The investigation is ongoing.