It's normal for kids to explore their bodies. Putting him in time out basically tells him that what he's doing is wrong. Tell him that he shouldn't be doing it in public.

To all of the dumbasses saying stuff like "OMG, a preschooler masturbating? What happened to this generation?" Children masturbating is perfectly normal, they usually don't know that what they're doing is something you should do in private, and that's up to an authority figure to tell them that. Punishing a 4 year old for masturbating is a little too much unless this wasn't the first time he did it.

Why punish the kid? Either it was simple and innocent exploration - in which case you tell the child why it is not appropriate in public - or it is one of the seriously unlucky super early puberty cases - in which case you still explain why it is inappropriate in public, maybe contacts the guardians.

*points and laughs* It happens. Kids don't know how sexuality works, just that what they're doing feels good. Don't freak out--just make sure they know it's a private thing. Time out is probably something you don't need unless they're ignoring you, and even then, distracting them with something is often a better alternative. Redirect is the life motto when they're that young...