Residents in Kendallville say the electronic advertisement, installed for two days by the controversial LaRouche Political Action Committee, went "way too far."
It depicted Obama with a small, black line across his upper lip - in what may of the area's 9,800 citizens say was an "extremely unfair" comparison to the Nazi Germany leader.
"All the hard work we put forward as a community to change our image; to be a positive, growing community, and then a sign like this appears," said Mayor Suzanne Handshoe.
But the LaRouche group, which is dedicated to advancing the controversial views of former presidential candidate Lydon LaRouche, defended the stunt, New York Daily News reported.
Members, who oppose modern banking and believe Obama is helping to spark a Third World War, said they were in town for a conference and bought the space "to make their presence known."
Kendallville sits in a conservative area of Northern Indiana, where Mitt Romney won 2-to-1 against Obama during the 2012 election.