Lydiate was voted the outstanding performer of the 2012 Six Nations and was also a cornerstone of the Welsh backrow, alongside Sam Warburton and Toby Faletau that reached the 2011 World Cup semi-final.
The flanker had hoped to return at the start of March but his reappearance was delayed due to a hamstring injury, meaning Lydiate is now in a race against time to win a summer spot on the Lions tour to Australia.
Dragons' coach Darren Edwards said: "He should be a definite for the week after next.
"Dan is recovering well. He is still going through ongoing fitness protocols.
"Unfortunately, he strained a hamstring a couple of week's back which has delayed his return. He is close."