My 2 year old has a red bump and irritation right below his urethra. What could it be?

Bump on penis. The most common cause of a red bump on the penis of a two-year old is a mild yeast infection, which can be treated with over-the-counter creams. These are particularly common if the child is still using diapers. There are other causes--like blood blisters, abrasions, minor vascular abnormalities, but these are far less common.