Hunchback is a bifunctional transcription factor that can activate and repress gene expression in Drosophila development. We investigated the regulatory DNA sequence features that control Hunchback function by perturbing enhancers for one of its target genes, even-skipped (eve). While Hunchback directly represses the eve stripe 3+7 enhancer, we found that in the eve stripe 2+7 enhancer, Hunchback repression is prevented by nearby sequences—this phenomenon is called counter-repression. We also found evidence that Caudal binding sites are responsible for counter-repression, and that this interaction may be a conserved feature of eve stripe 2 enhancers. Our results alter the textbook view of eve stripe 2 regulation wherein Hb is described as a direct activator. Instead, to generate stripe 2, Hunchback repression must be counteracted. We discuss how counter-repression may influence eve stripe 2 regulation and evolution.