The field of active nematics has traditionally employed descriptions based on dipolar activity. However, it is theoretically predicted that interactions with a substrate, prevalent in most biological systems, lead to novel forms of activity, such as quadrupolar activity, that are governed by hydrodynamic screening. Here, combining experiments and numerical simulations, we show that upon light-induced solidification of the underlying medium, microtubule-kinesin mixtures undergo a transformation that leads to a biphasic active suspension. Using an active lyotropic model, we prove that the transition is governed by screening effects that alter the dominant form of active stress. Specifically, the combined effect of friction and quadrupolar activity leads to a hierarchical folding that follows the intrinsic bend instability of the active nematic layer. Our results demonstrate the dynamics of the collapse of orientational order in active nematics and present a new route for controlling active matter by modifying the activity through changing the surrounding environment.