The antagonising interplay between canonical Wnt signalling and Dickkopf (Dkk) molecules has been identified in various processes involved in tissue organisation, such as stem cell differentiation and body-axis formation. Disruption of the interplay between these molecules is related to several diseases in humans. However, the detailed molecular mechanisms of the β-catenin/Wnt-Dkk interplay leading to robust formation of the body axis remain elusive. Although the β-catenin/Wnt signalling system has been shown in the pre-bilaterian model organism Hydra to interact with two ancestral Dkks (HyDkk1/2/4-A and -C) to self-organise and regenerate the body axis, the observed Dkk expression patterns do not match any current pattern-formation theory, such as the famous activator-inhibitor model. To explore the function of Dkk in Hydra patterning process, we propose a new mathematical model which accounts for the two Dkks in interplay with HyWnt3/β-catenin. Using a systematic numerical study, we demonstrate that the chosen set of interactions is sufficient to explain it de novo body-axis gradient formation in Hydra. The presented mutual inhibition model goes beyond the classical activator-inhibitor model and shows that a molecular mechanism based on mutual inhibition may replace the local activation/long-range inhibition loop. The new model is validated using a range of perturbation experiments. It resolves several contradictions between previous models and experimental data, and provides an explanation for the interplay between injury response and pattern formation.