We study N=2 supergravity deformed by a genuine supersymmetric completion of the $lambda R^4$ term, using the underlying off shell N=2 superconformal framework. The gauge-fixed superconformal model has unbroken local supersymmetry of N=2 supergravity with higher derivative deformation. Elimination of auxiliary fields leads to the deformation of the supersymmetry rules as well as to the deformation of the action, which becomes a Born-Infeld with higher derivative type action. We find that the gravitino supersymmetry deformation starts from $lambda , pa^4 {cal F}^3$ and has higher graviphoton couplings. In the action there are terms $lambda^2 pa^8 {cal F}^{6}$ and higher, in addition to original on shell counterterm deformation. These deformations are absent in the on shell superspace and in the candidate on shell counterterms of N=4,~8 supergravities, truncated down to N=2. We conclude therefore that the undeformed on shell superspace candidate counterterms break the N=2 part of local supersymmetry.
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