The hidden sketch, which is believed to be of the River Tone in Somerset, was discovered by DPAG paintings conservator Jenny Sherman on the back of Country Scene with Pollarded Trees and Wooden Gate.
"Sometimes you do find things on the back. There is a long history of artists using the same support to do a number of different sketches, studies and works.
"We're still checking out the provenance. We've got Hodgkins works from this period, but we don't have one like this. It's quite a big watercolour for her."
The covered up work was probably a working sketch from the early 1930s, Ms Notman said.
"That was one of her most highly regarded periods of production. You can see in the work that she's experimenting with loosening up her brushwork and using more vibrant colours."
Hodgkins (1869-1947) was born in Dunedin, but worked for most of her life in Europe.
Her father, William Hodgkins, was one of the founders of the Dunedin Public Art Gallery.
"She is the most highly-regarded New Zealand artist of the first half of the 20th century and we've got a very good representation of her art.
We've made a special effort to collect her works since the 1960s," Ms Notman said.
The two works will be specially framed, so that both sides can be viewed, and shown in the 2012 Hodgkins birthday exhibition, "Kaleidoscope", which opens on April 28.
