Further, he reveals he will allow the Wales flanker to play "until he drops" to help him make the trip Down Under.
Lydiate, the player of the 2012 Six Nations, made his return from six months out after breaking and dislocating his ankle against the Ospreys on Friday night.
The 25-year-old played the first 40 minutes of the 52-19 defeat before being withdrawn as planned at half-time, having not taken a full part in training during the build-up.
There are only four games of the season left for Lydiate to show he is ready to be selected in Warren Gatland's touring party, but Edwards is confident the tough-tackling back-rower has enough time to prove his readiness, and will be helped by Gatland's knowledge of his work with Wales.
He said: "A month is enough time for a player of Dan's quality to prove himself worthy of a Lions spot. He has worked very hard and all he needs is to blow away the cobwebs.
"I am sure Warren Gatland knows what balance of team he wants and knows that Dan, with his hard hitting and physicality, would have stood out for Wales against England."
Edwards will now look to increase Lydiate's game time before the end of the season, when he will leave Rodney Parade for a move to a French club.
The Dragons face the Scarlets at the Millennium Stadium on Saturday, and Edwards will let Lydiate play for as long as he can last.
"We could only play Dan for 40 minutes on Friday, so we were compromised in some ways, but it was important to get him out on the pitch," he said.
"I thought that he did very well and was hunting tackles like he is known for. I am sure there will be another step up in his performance now that he has got that game under his belt.
"We will now let Dan go flat out until he drops against the Scarlets."