Whole genome transcriptome analysis has revealed that a large proportion of the genome in higher metazoa is transcribed, yet only a small proportion of this transcription is protein-coding. One possible function of non-coding transcription is that it enables complex and diverse body plans to evolve through variation in deployment of a relatively common set of protein-coding genes. Functional studies suggest that long non-coding RNAs (lncRNAs) regulate gene expression via diverse mechanisms, operating in both cis and trans to activate or repress target genes. An emerging theme common to lncRNA function is interaction with proteins that modify chromatin and mediate epigenetic regulation. The Hox gene complexes are particularly rich in lncRNAs and require precise and fine-tuned expression to deploy Hox transcription factors throughout development. Here we identify and functionally characterize two novel lncRNAs within the D. melanogaster Hox complex, in the interval between Scr and Antp. We use nascent transcript fluorescent in-situ hybridization (ntFISH) to characterize the embryonic expression patterns of each lncRNA with respect to flanking Hox genes, and to analyze co-transcription within individual nuclei. We find that the transcription of one lncRNA, ncX, is an initial response to early transcription factors and may activate Scr expression, while transcription of the other lncRNA, ncPRE is consistent with activation and/or maintenance of Scr expression. ntFISH performed in D.virilis embryos revealed the presence of a lncRNA ortholog with highly similar expression to ncX, indicating functional conservation of lncRNA transcription across ~60 million years of evolution. We identify the ncPRE lncRNA locus as a binding site for multiple proteins associated with Polycomb/Trithorax response elements (PREs/TREs) and show that DNA encoding the ncPRE lncRNA functions as a bona fide PRE, mediating trans-interactions between chromosomes and silencing of nearby genes. We find that transcription through the ncPRE DNA relieves silencing, suggesting a role for endogenous transcription of the ncPRE lncRNA in relieving Polycomb-silencing and enabling Scr activation. We demonstrate that both lncRNA transcripts are required for proper Scr expression, and over-expression of either lncRNAs from ectopic genomic loci has no effect on Scr expression, but ectopic expression at the endogenous locus is associated with ectopic Scr activation, indicating that the lncRNA-mediated regulation functions locally at the site of transcription on the chromosome. ncX may mediate transvection effects previously observed at the Scr locus, independent of the protein Zeste. Together our results support a model of competing mechanisms in the regulation of Scr expression - a background of Polycomb repression acting from the ncPRE locus, which in the first thoracic segment is counteracted by lncRNA transcription and Trithorax binding to ncPRE, enabling activation and maintenance of Scr expression. This work provides a functional insight into the complex regulatory interactions between lncRNAs and epigenetic mechanisms, essential to establish and maintain the precise expression pattern of Hox genes through development.