Grealish has admitted he has found life at the Etihad Stadium "difficult" after leaving Aston Villa to become English football's first £100 million player in the summer.
He returns to Villa Park for the first time with City on Wednesday and ahead of the game, Guardiola has assured the 26-year-old he has been happy with his form since his arrival.
"My opinion is he's played much better than maybe he believes," Guardiola told a news conference on Tuesday.
"Maybe at Villa, everything started with him and he was free, you know, now he's in a new position and maybe has not been so determined or so clinical in the final third.
"Maybe because he respects his mates, maybe because it's a new environment, and that's normal, it's a process. He needs time. All the players who come here, for the first season, always struggle.
"But what he sees and what he has to do, is so easy for him with the quality he has. Just be free here and be who you are, that's all, no more. I don't say to the players what they have to do -- they play.
"When they get the ball close to the box, my friend, you decide whatever you want. That's why you are Jack Grealish and not another player. They have to play and make their moments."
Grealish is hoping to be fit to face his former club after missing the last three games through injury.
He has been a consistent starter for City so far this season but was left on the bench for the 2-0 win at Manchester United before the international break when Guardiola opted for a front three of Gabriel Jesus, Bernardo Silva and Phil Foden.
"Sometimes it's the environment, a new house, private life, but not just Jack -- all the players," added the City boss.
"Sometimes you have all your life living in one place and then you come to a different place and the expectations are huge, in terms of what you have to do. But play bad? Absolutely not. I didn't see one game yet where he did not play with the quality he has."
As well as Grealish, City are also sweating on the fitness of Foden and Kevin De Bruyne, who has tested negative for COVID-19 but is yet to return to full training.
"We are in an emergency in the squad," said Guardiola.
"We have few, few, few people. We never complain when it is not possible for players to play for injuries or red cards, I trust a lot in the squad and other players come in but we are in real trouble for December -- the toughest month of the year -- because we have few, few players.
"We have just 14, 15 players. We are in a difficult position because a lot of players play a lot of minutes."