Police were called to the Reservoir Dogs actor's Malibu home after a family dispute got out of hand, TMZ reports.
Madsen allegedly had a physical fight with his son and was taken to a nearby Sheriff's Department after authorities observed several signs of injury on the boy.
Madsen appeared to be under the influence of alcohol at the time of his arrest, the website claims.
He was booked on a felony charge of child endangerment with cruelty to a child, although his son didn't require medical attention.
The actor was released on $100,000 bail on Saturday morning (March 10), and said that it had been a "big misunderstanding" and "Everything's fine".
Madsen's attorney Perry Wander said: "[Michael] found his son smoking pot and they got in an argument when he tried to take it away. It's a family matter and Michael asks that his family's privacy be respected."
Madsen finished fourth in this year's Celebrity Big Brother.