Lydiate, currently recovering from a serious ankle injury, was a key member of the Wales side who reached the World Cup semi-final and were crowned Grand Slam champions last year.
His performances caught the attention of the rugby public and he was named RBS Six Nations player of the series following the competition.
The 24 year old forward has played for the senior side at Rodney Parade since 2006, overcoming a serious neck injury in 2007 which threatened his career.
Given his international exploits, Lydiate was a key player for the region and the Dragons were keen to retain him within their ranks.
“We are obviously very disappointed that Danny has decided to leave the Dragons,” said Dragons Director of rugby Rob Beale.
“He has been a key part of our set up for several years and is popular with both the players and the coaches.”
“I can assure our supporters that we did all that we could to retain Dan’s services but we simply cannot compete with the offers which have been put on the table.”
