The Bavarians have been drawn to play Los Blancos in the semi-finals after bypassing Manchester United, with Chelsea versus Atletico Madrid the other last-four tie.
Having previously gone on a run of 16 victories in 17 matches, Bayern have now won only once in their last five games and Guardiola has admitted that their performances during the last month would not be good enough to see them defend their European title.
"If we play like we have done in the last three league games, we won't be reaching any finals," he told reporters.
"We have to quickly find our form back. We're in a dangerous situation. If we play in Madrid like we have done recently then we have no chance.
"Sometimes a defeat helps to improve a team. But when the focus isn't there, then the head is slow and everything happens a slower. It's been the same training, the same system, the same players."
Guardiola was speaking ahead of Bayern's DFB-Pokal Cup final against Kaiserslautern on Wednesday. The fixture is seven days prior to their semi-final first leg against Madrid at the Santiago Bernabeu.