Nicky Clark, son of former Hearts striker and current Queens assistant Sandy Clark, put the Dumfries side on their way to a thoroughly-deserved second-round Scottish Communities League Cup victory with a close-range finish on 12 minutes.
Substitute Gavin Reilly added a second with a diving header in the 42nd minute and the home side continued to look the more enterprising team.
Hibs manager Pat Fenlon rested several players, including captain James McPake, after taking seven points from three games in the Clydesdale Bank Premier League as they look to recover from a poor season that ended with a 5-1 Scottish Cup final loss.
But the gamble backfired against the Second Division side, who have now won six and drawn one of their seven games this season.
Both goals came down the left side, where recalled pair Pa Kujabi and Callum Booth ahead of him looked far from assured.
Hibs created the first chance when a Jorge Claros shot deflected into the path of Leigh Griffiths inside the six-yard box. Griffiths looked offside but there was no flag and he could only sidefoot against bar, although the ball came at him quickly.
But Queens were ahead moments later. Derek Lyle played the ball inside Kujabi to allow Danny Carmichael to send in a low cross. Clark got in front of Sean O'Hanlon, another player brought into the team, to slot the ball inside near post from six yards.
Reilly replaced Lyle midway through the half but there was little disruption to the home side who were comfortably containing Hibernian's attempts to hit back.
Shefki Kuqi, making his first Hibs start, shot straight at Lee Robinson from 25 yards before Clark missed a great chance for his second.
Dan Orsi flicked the ball inside Jorge Claros and played in Clark, whose first touch took him away from Paul Hanlon and clean through, but the striker shot just wide as he ran into the box.
Griffiths had an equally good chance moments later after Claros and then Booth cut their way through the heart of the home side. Booth's pass played Griffiths in down the left channel but he was high and wide of the near post with his left-footed strike.
Hibs were soon made to pay as they were exposed down their left side again. It was right-back Chris Mitchell who made the first decisive pass this time but it was a familiar route as the ball again went inside Kujabi to Carmichael.
The winger sent over a cross that invited a diving header and Reilly guided the ball into the corner from six yards.
Booth and Kujabi were withdrawn at half-time with Alan Maybury and David Wotherspoon brought on.
Hibs made the initial running and Robinson punched a Griffiths free-kick wide, but they were soon on the back foot again.
Reilly saw a shot deflected over and mishit a shot from 12 yards after an impressive break, while Clark headed over after more impressive wing play from Carmichael.
Fenlon waited until the 70th minute to bring on Eoin Doyle for Kuqi, who failed to trouble the home defence, and the Irishman set up Paul Cairney twice but the midfielder could not take advantage.
Hibs could not mount any sustained pressure though and Robinson had a rare save to make from Wotherspoon's injury-time header.
