The centre, who played on the summer tour of New Zealand, is now the Magners League's leading try scorer while flanker Lydiate was one of the few rays of light for a disappointing Dragons team.
And Gatland admits their performances have given him a lot to think about ahead of the autumn internationals against Australia, South Africa, New Zealand and Fiji.
Asked who had impressed him, Gatland said: "Obviously Jon Davies - we have been talking a lot about him.
"The last 12 months he has really come of age. He looks fantastic, sharp.
"Danny Lydiate is also carrying the ball well."
And Dragons boss Paul Turner believes Lydiate is making an unanswerable case for international selection.
He said: "That was Welsh form and Warren was here to watch it. Danny carried very well and his defence was very good.
"He has been in good shape for a couple of years and is the sort of guy you can always rely on to stand up.
"If you want mental toughness and commitment, he's the guy. Danny has come back from two career-threatening injuries.
"He does the hard work and his skill level is very good."