The billboard was one of four featuring pictures of famous dead people set up on a highway to the holiday beach town of Pattaya, about an hour's drive southeast of Bangkok, to promote Louis Tussaud's Waxworks opening there next month.
Alongside the picture of the Nazi dictator, the poster, which was erected two weeks ago, carries a large Thai-language slogan saying: "Hitler is not dead."
Museum director Somporn Naksuetrong said the billboard had been covered up after "a lot" of complaints poured in, including protests from the Israeli and German embassies.
"We didn't choose Hitler with the intention of praising him, but because he is well-known," Somporn told news agency AFP.
"But we understand (why they are not happy). It is sensitive for some people and countries," he added.
Israeli Ambassador Itzhak Shoham said the billboard was "not only offensive to the Holocaust survivors but also to anyone who deplores racist behaviour."
"How this could happen is beyond my understanding and comprehension," he told the Bangkok Post newspaper.
The Israeli embassy protested directly to the museum while the German embassy complained via the Thai foreign ministry, Somporn said. Embassy officials were not available for comment on Sunday.
The museum has yet to decide who will appear on a replacement billboard.
Other faces featured in the campaign are India's Mahatma Gandhi, late pop king Michael Jackson and martial arts star Bruce Lee.
In May, a 42-year-old German man was fined €900 for ripping off the head of a wax figure of Hitler in the new Berlin branch of Madame Tussaud's last year.