Actually it depends on whether or not he dropped it intentionally and whether or not he touched it.
OBR 6.05
"A batter is out when_... (l) An infielder intentionally drops a fair fly ball or line drive, with first, first and second, first and third, or first, second and third base occupied before two are out. The ball is dead and runner or runners shall return to their original base or bases; APPROVED RULING: In this situation, the batter is not out if the infielder permits the ball to drop untouched to the ground, except when the Infield Fly rule applies."
But in your situation, it sounds like he dropped it unintentionally -- in which case Rob's response is right on.
10.14(d) "No error shall be charged against any fielder when, after fumbling a ground ball or dropping a fly ball, a line drive or a thrown ball, he recovers the ball in time to force out a runner at any base."