ERK controls gene expression in development, but mechanisms that link ERK activation to changes in transcription are not well understood. We used high-resolution analysis of signaling dynamics to study transcriptional interpretation of ERK signaling during Drosophila embryogenesis, at a stage when ERK induces transcription of intermediate neuroblasts defective (ind), a gene essential for patterning of the nerve cord. ERK induces ind by antagonizing its repression by Capicua (Cic), a transcription factor that acts as a sensor of receptor tyrosine kinases in animal development and human diseases. A recent study established that active ERK reduces the nuclear levels of Cic, but it remained unclear whether this is required for the induction of Cic target genes. We provide evidence that Cic binding sites within the regulatory DNA of ind control the spatial extent and the timing of ind expression. At the same time, we demonstrate that ERK induces ind before Cic levels in the nucleus are reduced. Based on this, we propose that ERK-dependent relief of gene repression by Cic is a two-step process, in which fast reduction of repressor activity is followed by slower changes in nuclear localization and overall protein levels. This may be a common feature of systems in which ERK induces genes by relief of transcriptional repression.